The First Circuit recently affirmed dismissal of claims under Section 10(b) and Rule 10b-5 as failing to meet the Private Securities Litigation Reform Act’s standard for pleading scienter. Corban v. Sarepta Thereapeutics, Inc., 868 F.3d 31, 42 (2017). The claims grew out of drug maker Sarepta’s description of its prospects for Food and Drug Administration (FDA) approval of a gene-therapy drug. In assessing the adequacy of the scienter allegations, the court looked primarily at the chronology of the drug maker’s statements and interactions with the FDA and whether it had a motive to lie, and it concluded that neither supported a strong inference of scienter. As Judge William Kayatta wrote for the three-judge panel that included Senior Judge Norman Stahl and retired Supreme Court Justice David Souter: “This is simply a case in which the complaint focuses too much on nuance rather than false facts or material omissions to support the necessary strong inference of scienter.” Id.
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In this putative class action, investors alleged that Biogen executives misled the public about the impact on sales of the company’s multiple sclerosis drug Tecfidera after one patient’s death. Plaintiffs alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act by Biogen and three Biogen executives. The First Circuit affirmed the District Court’s

In Brennan v. Zafgen, Inc., — F.3d –, 2017 WL 1291194 (1st Cir., April 7, 2017), the First Circuit affirmed a District of Massachusetts decision dismissing claims against Zafgen, Inc., a biopharmaceutical developer, and its CEO, Dr. Thomas Hughes. Judge Stahl, writing for a panel that included retired Supreme Court Justice Souter (sitting by designation),

In Ganem v. InVivo Therapeutics Holdings Corp., 845 F.3d 447 (1st Cir. Jan. 9, 2017), the First Circuit affirmed a District of Massachusetts decision dismissing claims against InVivo Therapeutics Holdings Corp., a biotechnology company, and its former CEO, Frank Reynolds. The First Circuit held that InVivo could not be liable for its projections about the start and end dates of a clinical study, because the plaintiff failed to adequately allege that these statements were rendered materially misleading by the nondisclosure of conditions imposed on the study by the FDA. Having found that the complaint did not support a Section 10(b) or Rule 10b-5 claim against InVivo, the First Circuit held that the plaintiff could not pursue a control person claim against Reynolds.
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The First Circuit affirmed the dismissal of nearly all securities class action claims against Ariad Pharmaceuticals, Inc. (Ariad) and four corporate officers, in In re Ariad Pharmaceuticals, Inc., Securities Litig., 842 F.3d 744 (1st Cir. 2016). The litigation focused on Ariad’s public statements about the potential for FDA approval of an experimental drug designed to treat a particular type of leukemia. Ariad made robust public statements about the efficacy of the drug, until the FDA pulled the drug from clinical trials amid negative side effects. The First Circuit found that other than one statement, the allegations of misrepresentations were insufficient to support a strong inference of scienter. The court also held that the allegations of insider trading were not actionable.
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Analogizing a plaintiff’s allegations to “brushstrokes” intended to paint a “portrait” of scienter, the First Circuit found those allegations “cover[ed] too little canvas” to give rise to the strong inference of scienter required under the Private Securities Litigation Reform Act.  See Local No. 8 IBEW Ret. Plan & Trust v. Vertex Pharmaceuticals, — F.3d